Money Matters  

'Show me the money!'

The battle for sporting success may soon be fought off the pitch more than on it, as UEFA get the FFP ball rolling
 Michel Platini is enforcing UEFA's FFP regulations
 
 

By Ian Lynam, Sports Law Partner at Charles Russell LLP

From next season, European football will tackle the introduction of UEFA’s Financial Fair Play Regulations (FFP).  The basic principle is simple football-related expenditure must not surpass football-related income.  However, in football it is not that straightforward. 

With the full FFP regulations set out across 87 pages, there are many unanswered questions. Does football need financial regulation? Is FFP the answer? And will UEFA come down hard on any breaches?

In 2010, over half of Europe’s top division clubs lost money with total losses increasing 30 percent to €1.6 billion and debts growing to €8.4 billion.  In recent years, many clubs across Europe’s top leagues have gone into administration including Rangers, Portsmouth, Leeds, Southampton, Fiorentina, Racing Santander, Real Mallorca, Real Zaragoza and Real Betis, to name a few. 

Something needed to be done. While a US-style salary cap may have some attractions as a means of ensuring financial stability and improving competitive balance, in practical terms it would simply drive the world’s best players out of Europe.  UEFA needed a solution which would achieve its aims without irreparably damaging club football in Europe.

UEFA worked closely with the European Commission to find a solution that would survive legal challenge and The Commission have now approved FFP, recommending it as “an effective model for other sports facing similar financial challenges”.

FFP means that until at least 2018, clubs will benefit from an ‘acceptable deviation’ which will allow them to lose reducing amounts (€45m for the period 2012 to 2014 example) provided those losses are covered by equity investment.

More significantly, an exemption has been included which excludes the salary costs of any players signed before 1 June 2010 from the 2011/12 numbers of any club which reports a ‘positive trend’.  The effect of this exemption will be to give all clubs considerable breathing space until 2015/16 and explains why certain big-spending English teams are not too concerned about FFP just yet.

The jury is still out as to whether there are loopholes which clubs will be able to take advantage of.  Over-valued sponsorship deals is a topic which has received considerable media attention.  UEFA can look at suspiciously valued sponsorship deals but only where that transaction is with a ‘related party’ (a person or company with significant influence over the club).  It’s not difficult to imagine sweetheart deals being entered into with parties other than ‘related parties’ and, under the current wording of FFP, there wouldn’t be anything which UEFA could do about it.

The revenues to be counted under FFP are defined broadly.  FFP states that revenues only need to be excluded “if it is clearly and exclusively not related to the activities, locations or brand of the football club”.  They specify that “operations based at, or in close proximity to, a club’s stadium and training facilities such as a hotel, restaurant, conference centre, business premises (for rental), health-care centre, other sports teams”, can be included. 

So revenues from the Arsenal property development or the Etihad Campus should be okay.  Could clubs go further?  Trabzonspor are building a hydroelectric power station in the hills above their stadium.  Will they argue that the revenue generated should count as a business “in close proximity” to their stadium?  Does this shed new light on Chelsea’s bid for Battersea Power Station?!

Ensuring clubs stay solvent sounds sensible but there are arguments against FFP. Many worry it will skew the competitive balance in favour of clubs that already enjoy large revenue streams (such as Real Madrid, Barcelona, Manchester United and Bayern Munich) while ensuring that potential new challengers will no longer be able to use external investment to catch up.  

Owners will no longer be able to fund lavish player acquisitions without running into trouble under FFP, but investment in stadiums, infrastructure and youth development are not caught and can continue to be externally funded.  However, building a stadium without fans to fill it will not help anyone, and most clubs (with some notable exceptions) have found youth development a challenging route to growing revenues.

UEFA have set out a sliding scale of sanctions: a warning, fine, points deduction, withholding prize money, preventing clubs from registering players and, ultimately, a ban or withdrawal of titles and awards.

We are waiting on  guidance from UEFA as to how and when the sanctions will be imposed.  This uncertainty in itself may be a useful deterrent.  UEFA's general secretary, Gianni Infantino, has stated: “There may be intermediate measures. We would have to ask why, maybe there would be a warning, but we would bar clubs in breach of the rules from playing in the Champions League or the Europa League. Otherwise, we lose all credibility.” 

This is undoubtedly true.  For FFP  to have credibility, some loopholes will need to be closed and UEFA will need to take, and be seen to take, strong action against clubs who are in breach.   

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